High-proﬁle cases and media coverage of corruption in emerging markets, including Asia, have heightened U.S. business and government awareness with respect to violations of the U.S. Foreign Corrupt Practices Act (“FCPA”). The FCPA, a once seldom enforced law, is now enforced regularly, and both companies and individuals are paying the price for violating the FCPA with civil and criminal penalties. Because of the government’s focus on the FCPA and the corresponding increase in enforcement actions, it is increasingly important that companies establish and implement comprehensive FCPA compliance programs. These programs not only assist in deterring FCPA violations, but also factor into the government’s enforcement analysis and can mitigate penalties in the case of a violation.
The FCPA has two types of provisions: anti-bribery and record keeping. The anti-bribery component of the FCPA criminalizes the act of offering or giving a “thing of value” to a foreign ofﬁcial (anywhere in the world) for the purpose of obtaining or retaining business, or an improper business advantage. These anti-bribery provisions apply to the following categories of individuals and entities: (1) “issuers” of certain types of securities regulated by the SEC anywhere in the world; (2) “domestic concerns,” which essentially includes all U.S. individuals and business entities, including public and private corporations and partnerships, anywhere in the world; and (3) “any person” that performs an act in furtherance of a prohibited act in U.S. territory.
The FCPA also requires companies with publicly-traded stock in the U.S. to meet certain standards regarding their accounting practices, books and records, and internal controls. These provisions, which only apply to “issuers,” are designed to eliminate slush funds and off-book transactions that facilitate bribery.
The FCPA provides for both criminal and civil penalties. Criminal penalties for individuals include ﬁnes of as much as $100,000 and/or up to ﬁve years in prison. Businesses may suffer criminal ﬁnes up to $2 million per violation. Also, the FCPA provides for civil ﬁnes of as much as $10,000 against any business that violates the anti-bribery provisions of the FCPA, and against any ofﬁcer, director, employee, or agent of a business who willfully violates the anti-bribery provisions.
Current Aggressive Enforcement Environment
For a variety of reasons, including the Enron debacle and the recent increase in the number of mergers and acquisitions, FCPA enforcement has been at historically high levels for the past several years. The number of FCPA enforcement actions will likely continue to increase over the next several years because the government has chosen to concentrate more of its resources in the area.
In addition to increasing FCPA enforcement resources, several recent cases demonstrate the government’s willingness to seek enforcement based on a broader set of “things of value.” No longer are enforcement ofﬁcials exclusively concerned with cash payments, but instead base FCPA enforcement actions on charitable and political contributions, travel and travel-related expenses, and gifts and entertainment.
Finally, the government is no longer basing enforcement actions solely on the actions of the U.S. company. Instead, it has broadened its focus and will now seek enforcement against a U.S. company for the actions of its foreign subsidiaries, agents and distributors.
Key Compliance Program Components
Every U.S. based company, whether private or public, that does business in a foreign country should adopt a company-wide compliance program designed to prevent and address violations of the FCPA. In addition to preventing FCPA violations, U.S. government enforcement ofﬁcials have made clear that they consider the existence of a compliance program as a factor in their determination as to whether to charge the company with a violation. Further, under the federal Sentencing Guidelines, a court will consider an effective compliance program when analyzing whether to mitigate the penalties imposed on a business for an FCPA violation. In order for the corporate compliance program to provide the most beneﬁt to the company, the program must be comprehensive and should ideally include the following components:
- A clearly articulated corporate policy against violations of the FCPA and foreign anti-corruption laws and the establishment of compliance standards and procedures to be followed by all directors, ofﬁcers, employees, agents, and all business partners (i.e., distributors and contractors) involved in business transactions, representation, or business development or retention in a foreign jurisdiction that are reasonably capable of reducing the possibility that these laws will be violated.
- The appointment of a Chief Compliance Ofﬁcer, who shall report to the CEO of the company and to the Audit Committee of the Board of Directors and be responsible for the implementation and oversight of compliance with all of the company’s compliance policies, standards, and procedures established under the compliance program.
- The effective communication to all directors, ofﬁcers, employees, agents and business partners of the company’s compliance policies, standards, and procedures regarding the FCPA, by requiring (i) regular training concerning the requirements of the FCPA and (ii) that they all annually certify compliance with the FCPA.
- An effective reporting system, including a “Hotline,” for directors, ofﬁcers, employees, agents, business partners, and third parties to report suspected violations of the compliance program or other suspected illegal conduct under the FCPA.
- An appropriate disciplinary procedure designed to address matters involving violations or suspected violation of the FCPA, foreign anti-corruption laws, or the company’s compliance code.
- Extensive due diligence requirements pertaining to the company’s agents and business partners, including the maintenance of complete due diligence records at the company.
- Clearly articulated corporate procedures designed to ensure that the company exercises due care to assure that substantial discretionary authority is not delegated to individuals the company knows, or should know through the exercise of due diligence, have a propensity to engage in illegal or improper activities.
- A system to review and to record, in writing, actions relating to (i) the retention of any agent or subagents thereof and (ii) all contracts and payments related thereto.
- The inclusion in all agreements, contracts and contract renewals with all agents and business partners of provisions: (i) setting forth anti-corruption representations and undertakings; (ii) relating to compliance with the FCPA and foreign anti-corruption laws; (iii) allowing for periodic internal and independent audits of the books and records of the agent or business partner to ensure compliance with the foregoing; and (iv) providing for termination of the agent or business partner as a result of any breach of the FCPA or foreign anti-corruption laws.
- Financial and accounting procedures designed to ensure that the company maintains a system of internal accounting controls and makes and keeps accurate books, records, and accounts.
- Periodic independent audits of the company’s compliance code to ensure that the provisions of the code are being implemented in an effective manner.
In light of the current aggressive FCPA enforcement environment and the criminal and civil penalties associated with FCPA violations, a comprehensive FCPA compliance program can be invaluable in protecting U.S. companies operating in foreign countries.
If you have any questions regarding the matters discussed in this outline, please call or e-mail the Edwards Angell Palmer & Dodge LLP lawyer responsible for your affairs or:
Michael T. Gass
Stephen G. Huggard
Katherine Barr Hollingsworth